IRS determines Bitcoin is property not currency

This is a fascinating ruling on the Bitcoin argument as a currency. The US IRS has noted that Bitcoins are not fungible, which is one of the features of cash. Each Bitcoin is unique which also implies unique tax treatment. Whereas cash can be together in bills or in an account and it doesn’t matter which one is spent first.

This doesn’t stop it being used as a payment medium, but it is not the same as cash.

The IRS ruled that Bitcoin and other virtual currencies are property, not currency. This means that they are subject to capital gains taxation. And that means that Bitcoins are not fungible. The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent. If I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390.